Correlation Between ABSA Bank and Absa

Can any of the company-specific risk be diversified away by investing in both ABSA Bank and Absa at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining ABSA Bank and Absa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ABSA Bank Limited and Absa Group, you can compare the effects of market volatilities on ABSA Bank and Absa and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in ABSA Bank with a short position of Absa. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABSA Bank and Absa.

Diversification Opportunities for ABSA Bank and Absa

0.33

Correlation Coefficient

ABSA Bank  Absa

Weak diversification

The 3 months correlation between ABSA and Absa is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding ABSA Bank Limited and Absa Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Group and ABSA Bank is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on ABSA Bank Limited are associated (or correlated) with Absa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absa Group has no effect on the direction of ABSA Bank i.e., ABSA Bank and Absa go up and down completely randomly.

Pair Corralation between ABSA Bank and Absa

Assuming the 90 days trading horizon ABSA Bank is expected to generate 6.61 times less return on investment than Absa. But when comparing it to its historical volatility, ABSA Bank Limited is 1.36 times less risky than Absa. It trades about 0.01 of its potential returns per unit of risk. Absa Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,646,408  in Absa Group on September 20, 2024 and sell it today you would earn a total of  277,892  from holding Absa Group or generate 16.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

ABSA Bank Limited  vs.  Absa Group

ABSA Bank Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ABSA Bank Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, ABSA Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Absa Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Absa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ABSA Bank and Absa

The main advantage of trading using opposite ABSA Bank and Absa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABSA Bank position performs unexpectedly, Absa can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Absa will offset losses from the drop in Absa's long position.

The idea behind ABSA Bank Limited and Absa Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.